Charles River Associates (2014)
|Charles River Associates (2014)|
|Title:||Economic Analysis of the Territoriality of the Making Available Right in the EU|
|Author(s):||Charles River Associates|
|Citation:||Charles River Associates, Economic Analysis of the Territoriality of the Making Available Right in the EU (2014).|
|Link(s):||Definitive , Open Access|
|Key Related Studies:|
|About the Data|
|Data Description:||Theoretical economic analysis of the effects of deviation from the Status Quo to create hypothetical Scenarios, focussing on overall social welfare from adjusting mechanisms affecting vertical supply chains, price discrimination and transaction costs.|
|Data Type:||Secondary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||Yes|
|Government or policy study?:||Yes|
|Time Period(s) of Collection:||
In the European Union, the protection of copyright and related rights is territorial in the sense that these rights are provided by national laws and their geographical scope is limited to the territory of the state granting them. As a result, enforcement of rights occurs on a country-by-country-basis. With respect to online on-demand uses of their creative works, authors of music and audiovisual works as well as holders of related rights enjoy an exclusive right of making their works available online to the public “in such a way that members of the public can access them from a place and at a time individually chosen by them”. In practice, online on-demand services also often involve a relevant act of reproduction of copyright protected works which entails the clearance of a second type of right, namely the reproduction right.
Some stakeholders have suggested that the current copyright regime makes the clearance of rights for cross-border online uses an unnecessarily complex as well as resource-consuming process. Multinational service providers indeed often have to negotiate required rights separately for several territories since licensing content on a territory-by-territory basis (territorial licensing) appears to be a common practice in Europe. This arguably raises barriers to cross-border online access and prevents the online sphere from realising the full economic potential associated with the borderless nature of the internet.
In this report, we take territorial licensing as consisting of rightholders exercising the territorial nature of copyright by limiting the geographical scope of the rights granted to licensee to a proper subset of EU Member States within a particular transaction. In line with this definition, the territorial nature of copyright is in itself not a sufficient condition for territorial licensing to take place. Indeed, the decisions of licensors to restrict the geographical scope of licences (i.e. to license on a territory-by-territory basis), are based on private motivations and depend on the wider institutional context, not only on the territorial nature of copyright. This report analyses the private motivations underlying the choice of territorial licensing in the current institutional framework in order, in a nutshell, to answer the following question: would a limitation to the practice of territorial licensing improve social welfare? The report focuses on two kinds of copyright-protected works, recorded music and audiovisual works.
Main Results of the Study
- The study identifies several key mechanisms through which the proposed scenarios are likely to affect total welfare. These mechanisms can be broadly categorised into three groups: (1) the use of vertical agreements to affect the interaction between parties within the vertical supply chain and between vertical supply chains, (2) price discrimination and (3) transaction costs.
- Territorial licensing, as an instance of vertical agreements, could generate efficiencies by allowing the parties in vertical relationships to control for harmful externalities. However, it could also be used anti-competitively. The scope for efficiencies would appear to be significant in the relevant industries, and potential harmful effects, while possible, do not appear to be systemic. Therefore, policy changes which reduce the effectiveness of territorial licensing entail a risk of undermining the associated efficiencies which do not appear to be justified by the possibility to reduce the risk of harm.
- Regarding price discrimination, our analysis suggests that there are potential benefits to static welfare that might flow from the proposed policy changes. However, we also find that, in scenarios which limit the ability to restrict territorial scope of licences, dynamic effects would likely negatively affect total social welfare. Our analysis suggests that, due to the importance of sunk costs in both the music and the audiovisual industries and due to the short life of these products, the weight put on preserving the dynamic incentives to invest in the production of creative content should be significant. Price discrimination in the audiovisual and music industries might then well be efficient overall.
- It may indeed well be that the increase in transaction costs which results from territorial fragmentation of rights is an unavoidable side-effect of efficient licensing practices. A careful examination of the determinants of transaction cost reveals, perhaps counterintuitively, that some of the analysed policy changes designed to promote multi-territorial exploitation of content might result in an increase in transaction costs in comparison to the Status Quo. This is because in some of the scenarios legal and/or business uncertainty would likely increase.
- The analysis of the four hypothetical scenarios favours the introduction of the country of origin principle while preserving the freedom of contracting (Scenario 2). This scenario could indeed reduce transaction costs while preserving the ability of the stakeholders to limit the territorial scope of their licences through appropriate contractual clauses. However, such conclusion is subject to a few important caveats.
Policy Implications as Stated By Author
The authors state that changes to the licensing model could likely be adopted in response to the reform of the copyright framework and that such changes may also deny the gains that policy-makers hoped to achieve. However, they state that theory alone is unlikely to give strong predictions and that the relevant mechanisms discussed under the headings of Vertical Agreements and Price Discrimination often have ambiguous effect. Nevertheless, it can inform us about the sources of risks and potential benefits associated with the different policy options.